There is little doubt the auto business drives the economics of the roll on-roll off business. But shifts in auto manufacturing to new regions, and an uneven demand for vehicles, has impacted trade routes and industry investment. More often than not, when a roll on-roll off ship, better known as a ro-ro carrier, enters port, bystanders on the shore are stunned by the size of the sheer steel wall and the angled ramp which looks like a folded highway bridge pasted on a ship’s stern by a toddler. The strangeness of the ro-ro carrier continues with the cavernous interior. There is empty space where bulkheads and compartments should be. It looks more like a parking garage than a ship. But ultimately that’s what many ro-ro ships are: floating parking garages. A majority of the “autoliner” market is PCTC (Pure Car Truck Carrier) and the main business is shuttling vehicles from country of manufacturing to country of consumers. There is a saying in New England ‘money is flat and made to be piled’ and the more vehicles that can be “piled” into a ro-ro, the more money there is to be made. For that reason, like containerships, ro-ro vessels have gotten bigger, very much bigger, in a relatively short length of time. The new generation of ultra-large PCTCs, like the Hoegh Target, carry up to 8,500 CEU (car equivalent units) and can deploy 14 liftable decks to accommodate freight. Additionally, the stern ramps can handle up to 320 tons of traversing cargo. A decade ago, half the CEU capacity would have been a ro-ro line haul vessel. Routes of the Matter With nearly $673 billion in global sales in 2015, vehicles are the largest manufactured product traded in the world. It is the driver that makes the ro-ro business go round. Perhaps less apparent is just how circuitous a business the global auto trade can be. Automakers have moved production to and fro, attempting to fit the best combination of cost conscious manufacturing to emerging demand patterns. Is it cost effective to build the vehicles in the region where the demand is or ship the vehicles to the region of demand or some combination of the two? Back in 2010, with the world coming out of the “Great Recession”, the global volume of vehicle transport notched just over 13 million CEUs. In 2015 this figure had risen to 14.3 million and is forecast to rise to over 16 million by the end of the decade. In Japan exports hit 4.58 million units in 2015, up over the 4.47 million unit figure recorded in 2014 but well behind totals in 2012 and 2013 and far short of the pre-Recession 6.73 million units recorded in 2008. The EU vehicle exports in 2010 were 4.7 million units and since then have been over 6 million exported units every year (6.23 million in 2015). North America, particularly the U.S, has been the main destination but the vehicle global export market has changed and is still evolving. Europe’s vehicle exports are an example of the market shift. In 2015 Europe’s global vehicle exports were 1.27 million units with a little over 20% shipped to the U.S. In 2010, Europe’s vehicle exports to China were about 350,000 CEUs and by 2014 rose to over 600,000 units before falling back last year to 472,000 units. Serbia went from 81,000 units to over 198,000 units in 2015 while Russia’s vehicle imports from Europe peaked in 2012 at over 623,000 to around 192,000 units last year. BRIC Pointers But as the Russian numbers suggest, the BRIC (Brazil, Russia, India, China) boost and the demand in the emerging nations hasn’t quite played out as expected. In terms of auto sales, the BRICs had a less than robust performance in 2015 after 2014: Brazil’s auto sales were down in 2015 compared to 2014, $3.32 million to $2.48 million, Russia over the same period, $2.49 to $1.60 million while India was moderately up $2.93 to $3.10 million and China up $21.59 million to $23.37 million. To put it into perspective, China’s year-over-year growth in vehicle sales was up only a little over 7% compared to 10% in 2014 and 16% in 2013. Reported new vehicle ownership restrictions in major cities in China could also squeeze growth figures. The news isn’t much better for Russia or Brazil. In Russia the 2015 auto sales were nearly 50% lower than the 2012 peak. And in Brazil vehicle sales were off by 30% from the nation’s record high in 2012. India is really the only bright spot among the BRIC nations with a nearly 10% increase in auto sales to over 2 million units. Although the immediate returns for the emerging nations weren’t as positive as anticipated, there are a number of positive signs in the global vehicle market. Over the period 2011-2015 Vietnam’s auto imports were up almost 173% to $1.5 billion in 2015. Similarly, neighboring Cambodia was up 151% to $451 million and South Korea – a major exporter- saw its imports jump almost 174% to $9.9 billion. No doubt part of the strategy behind South Korea’s central bank cutting benchmark interest rates is to bolster auto exports (exports in general have fallen for 17 consecutive months through May), which have been under pressure. The region that most vehicles’ exporters thought would climb is the Middle East/Africa. Saudi Arabia, at $17.6 billion worth of imports in 2015, is the largest regional market but was only up 2.6%. The UAE was next at a little over $11 billion. No other nations even hit $4 billion in vehicle imports. Nations that have market potential like Egypt or Algeria, both around $2 billion in imports annually, have stalled. No doubt, some of this is related to the depressed oil revenues but automakers have been counting on better returns from their exports to nations like Kuwait, Qatar, Bahrain, Iraq and Iran (which might be on the verge of a boom) to bolster profits against slower import growth in mature economies. Almost the same can be said for Latin America. The entire region imported just under $23 billion in vehicles just about the same as Italy’s imports by itself. From the global automakers’ perspective, the demand in these markets, especially Brazil, has been less than forecasted, as the commodity slump has had a more dramatic influence on regional economies than expected. North American Ports The U.S. auto market is by far the largest in the world at $170 billion, representing nearly a quarter (in terms of dollars) of the entire global auto import total. By comparison, the next four importers in size (United Kingdom, Germany, China and France) fall short by nearly $2 billion, when compared to the U.S. vehicle imports. It is the auto market and in many respects defines how the auto industry is shaped. The shift in auto manufacturing to Mexico (80% production is exported) was aimed predominately at the U.S. market with the Latin American segment almost a bonus. Mexico is now the 8th largest auto exporter at $32.8 billion and rising. From a ro-ro perspective, the shift in production also means a shift in trade routes. Jonathon Doyle, general manager auto/RoRo for Ports America, one of the largest stevedoring/terminal groups in North America, explained how they view the shift in production, stating “From Ports America’s perspective, we see the automobile markets plateauing and in some areas contracting from last year. We also see a shift in sourcing from Asian and European plants to Mexico/Latin America. This shift is significant as the ocean freight rates from Europe and Asia to North America are significantly higher compared to the ocean freight rates from Central and Latin America to North America. With the shift towards short sea shipping, the economics are becoming ‘more’ cost focused.” A quick look at North America’s ro-ro ports tells an interesting story. Baltimore is the leading U.S. ro-ro port in the nation at 753,265 units in 2015 (see Top North American Ro-Ro Ports on page 5). Recently the Port received another boost to its pre-eminent position with a ro-ro facility on the 3,100 acre site for imports beginning with Fiat Chrysler. (See adjacent Tradepoint article) Baltimore is in many ways a unique ro-ro port as it is as much about high and heavy freight as it is vehicles. And the outbound “backhaul” has become very important as carriers compete not only for traditional ro-ro cargo, but also for freight from containership and breakbulk services. But Baltimore is just one part of an interesting shift in ro-ro ports and autoliner schedules. Ports on the U.S. East Coast and Southeast have evolved into major players in the vehicle processing business. For a long time on the East Coast it was all about the Port of New York/New Jersey (still ranked fifth in vehicle handling) but now ports like Brunswick, Georgia; Jacksonville, Florida; Charleston, South Carolina and Davisville, Rhode Island (a small port posting remarkable ro-ro numbers) are on the map. The shift is apparent even with West Coast ports like the ports of Los Angeles, Long Beach, and San Diego now competing with the ports of Veracruz and Lazaro Cardenas, Mexico or Vancouver, Canada. The port mix could well change again with Gulf ports like Houston benefiting from the expansion of the Panama Canal. Ultimately, the ongoing rearrangement of auto manufacturing will dictate where the investment in the auto logistics’ assets are applied. But for right now with so many twists and turns influencing the process, it is difficult to predict what’s around the next corner.